Industrialization 4.0. How does procurement measure up?

The fourth industrial revolution has begun a couple of years ago, and now, it is galloping ahead. Nowadays, everybody is talking about industrialization 4.0. Some are still not aware what does it entail and what will be the full scope of repercussions.

You may think that we exaggerate when we use the term Industry 4.0, but when you take a look around you and see how fast the industry is being digitalized it is not far-fetched at all.

So what does it bring us? The 4th industrialization has brought together Cyber-Physical Systems, Big Data, the Internet of Things, the Internet of Service, 3D printing and created a new value chain.

What are exactly Cyber-Physical Systems? It´s just another name for artificial intelligence. Machines are communicating among themselves and automating work processes as a result of their conversations. Industry operational production is getting more efficient as we speak.

As always, whenever someone mentions AI, some people are afraid that an army of robots will realize humans are completely obsolete. That is still not the case, but operational jobs have already started to melt away. By listening what the market needs and offering that knowledge to existing personnel, you can easily have the best of both worlds.

What has the 4th industrial era specifically brought to procurement?

Procurement is also having its own renaissance. Operational procurement as such is digitalized in many companies, and others are seriously considering it. There are a number of different software solutions which can calculate optimal stock levels and issue automatic orders. Systems are being simplified. Invoicing and all accompanying bureaucracy is being automated as well. Tactical procurement is following suit with e-sourcing, contract management and SRM tools. There’s even talk about cognitive procurement, which tries to mimic the human brain with self-learning systems (combining data mining, pattern recognition and natural language processes). It’s still in its infancy, but it’s very interesting.

That still doesn´t mean that you should buy good software and get rid of all your buyers. Not everything can be fully automated. Big Data and analytics are collected by computers but only a trained procurement strategist can generate added value out of it.

Every industrial revolution so far has faced rejection and fear, and it is no different now. People don´t see why do they need to reorganize their whole business, when it was going so well until now. Managers fear initial investment costs, and workers fear that their jobs will become redundant.

It comes down to whether we want to act out of fear or whether we want to seize new opportunities. This evolution is an incredible moment to start devising strategies that will be able to complement all our business needs and wants, while mitigating risks. Strategy involves the future vision of the business and tactics involve the actual steps needed to achieve that vision.

In conclusion I would like to add a quote from Dr. Eberhard von Kuenheim, 1970-1993 chairman of the board, 1993-1999 Supervisory board chairman BMW AG:

„Competition is more and more a question of time controllability. It´s not the case of big eating small, but the fast overtaking the slow.“

 

If you want to keep up with industry insights, be sure to follow Cirtuo’s LinkedIn page or subscribe to Cirtuo Strategy Hub.

Drasko Jelavic is a strategic procurement expert and Cirtuo’s CEO & founder. With almost 20 years of experience in strategic transformations, his knowledge was continuously upgraded in a top consulting firm in a variety of business industries.